New-home sales rise 2.8% to 870,000 pace in July

WASHINGTON (MarketWatch) -- Sales of new homes increased 2.8% in July to a seasonally adjusted annual rate of 870,000 as the inventory of homes for sale dropped for a fourth straight month, the Commerce Department estimated Friday.

Sales were stronger than the 820,000 annualized pace expected by economists surveyed by MarketWatch. See Economic Calendar. In addition, sales in June were revised slightly higher.

"Given the volatility inherent in the data and the troubles in the mortgage market, however, it is unlikely that July represents a turnaround in housing trends," wrote Celia Chen, an economist for Moody's Economy.com. "At best, it will be the first sign of a slow and unsteady climb back to health."

Inventories of unsold homes fell about 1% to 533,000, the fourth consecutive decline. At the July sales pace, the inventory represented 7.5 months' supply, down from 7.7 months in June. Inventories are down 7% since last July.

"While this data signals possible good news on the sales and inventory side of the new home market, it is still too early to say things are getting better, and in the aftermath of the market turmoil in August, a recovery still seems a long ways off," wrote Drew Matus, an economist for Lehman Bros.

The median sales price in July was $239,500, up 0.6% compared with a year earlier. The median sales price can be affected by the mix of homes sold from region to region and among different price points.

The data cover activity through the end of July, before the severe credit squeeze forced additional mortgage lenders out of business and made nonconforming mortgages, including jumbo mortgages, harder to obtain. Most economists expect home sales to fall further, at least temporarily, because of the credit crunch.

Home builders grew more pessimistic in August, with their sentiment index falling again on doubts that sales would improve over the next six months. See full story.

The government cautions that its housing data are subject to large sampling and other statistical errors. Large revisions are common. The standard error of 12% is so high, in fact, that the government cannot be sure in most months whether sales rose or fell.

It can take up to five months for a trend in sales to emerge. New-home sales have averaged 867,000 per month over the past five months, compared with 861,000 in the five months ending in June. The five-month sales average is now down 19% from last July's 1.07 million pace.

Home builders have piled on incentives, including offering free vacations and new cars, to sell homes and reduce inventories. Such incentives are not subtracted from the sales price reported to the government.

Sales are reported when a contract is signed, not at the closing of the sale. Home builders have reported a large increase in cancellations in recent months. Cancellations are not reflected in the government data, so the reported sales are likely overstated.

Sales rose 22.4% in the West to 213,000 annualized and rose 0.6% in the South to 492,000. Sales fell 24.3% in the Northeast to 53,000, and fell 0.9% in the Midwest to 112,000.

In a separate report, the Commerce Department reported orders for durable goods increased 5.9% in July. See full story.

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